Turbo-traders take Bank of America for a ride

Analysts say high-frequency trading is partly responsible for the huge daily swings in the market in 2010 and 2011. The technique gained notoriety after May 6, 2010, the day of Wall Street’s “flash crash.” The Dow fell almost 1,000 points in minutes, bewildering traders and inciting panic. The market recovered to close down 348 points.

High-frequency trading was blamed and attracted scrutiny from regulators. The Securities and Exchange Commission didn’t ultimately blame high-frequency trading for the crash, but said it exacerbated the decline. Regulators haven’t done anything to curb it.

Sometimes high-frequency traders don’t even profit from the trade itself. They buy and sell shares at the same price and make money by sending large orders through the exchanges.

NYSE, Nasdaq and others want to attract the most traders. So they offer rebates of 20 to 32 cents per 100 shares to traders who send in large orders. On the electronic exchange NYSE Arca, traders who can move 35 million shares pocket a quick $112,000.

“Rebates will be the same no matter what the price, so the computers keep trading all day long,” says Keith Bliss, senior vice president at brokerage firm Cuttone & Co.

Bank of America says it has no position on high-frequency trading. At some point it could reduce its shares, as Citi did. But the bank is focused on strengthening its finances, the reason it sold more shares in November and December.

Bank of America’s chief financial officer, Bruce Thompson, told reporters in January that the bank isn’t likely to buy back stock this year. So for now, those human investors will have to buckle up for the ride.